Big fall for Crescent Resources

Crescent Resources and 120 of its subsidiaries — saddled with more than $1 billion in liabilities — filed Wednesday for voluntary Chapter 11 bankruptcy protection.

The Charlotte-based real estate giant says it has more than 5,000 creditors, according to its filing. Bank of America Corp., Blythe Development Co., Ranger Construction Co., North American Lawn & Landscape and ColeJenest & Stone are among Crescent’s largest unsecured creditors in Charlotte.

Crescent, with land holdings estimated at about 75,000 acres, says its assets are more than $1 billion. The filing is necessary, the company says, to reorganize its finances, reduce its debt and improve its capital structure.

Real estate analyst Chuck Graham says a bankruptcy filing from “a company of this stature” is a reflection of the extreme stress facing the development industry.

“It’s a very sad event,” Graham says. “Crescent was a remarkable developer that did remarkable work.”

Crescent plans to operate its continuing businesses without any significant interruption during the restructuring. That’s possible because of a recently obtained debtor-in-possession financing facility of $110 million from a group of its existing lenders, Crescent says.

“We intend to reach an agreement on our new capital structure and emerge from bankruptcy quickly,” Crescent’s new chief executive Andrew Hede said in a statement.

Hede replaced longtime Crescent executive Arthur Fields, who announced his retirement on the same day as the Chapter 11 filing.

Bankruptcy attorney Judy Thompson from the Charlotte office of Poyner Spruill says a case of this size will be complicated, time-consuming and “extremely expensive.” The filing gives Crescent time to find funding to finish projects and hold lien creditors at bay.

“They will try to structure a reorganization that fits a more workable capital structure,” says Thompson, who is not involved in the Crescent filing. “What that means is selling off assets and the jettison of some of their trade debt.”

The bankruptcy petitions were filed in the U.S. Bankruptcy Court in the Western District of Texas, Austin division. The company has 120 days from the filing date to submit a reorganization plan. Attorney Eric Taube of Hohmann, Taube & Summers in Austin will represent Crescent in the proceedings.

The company — jointly owned by Duke Energy Corp. and Morgan Stanley — is best known here for development of high-end communities on Lake Norman and Lake Wylie.

Duke formed Crescent in 1969 to develop property it acquired through its utility business. That included waterfront property at Lake Norman and Lake Wylie, which serve as reservoirs for Duke’s hydroelectric and nuclear power plants.

In September 2006, Duke entered into a joint venture with Morgan Stanley Real Estate. Morgan Stanley paid Duke $415 million in cash and assumed $656 million in debt for its stake in the company, then worth $2.1 billion. As part of the transaction, Crescent borrowed $1.2 billion and distributed the proceeds to Duke to transfer the debt off Duke’s balance sheet.

Duke and Morgan Stanley each have a 49% stake in Crescent. The remaining 2% interest in Crescent — which would have been worth $42 million when the deal closed — was issued to Fields.

The Charlotte Business Journal reported in April that Crescent — facing a $1.2 billion term loan due by September 2012 — had begun selling assets at fire-sale prices. In October, Crescent sold 4,500 acres in Berkeley County, S.C., to MeadWestvaco Corp. for $40 million. In December, the company sold a Florida apartment project for $11.35 million, less than half the $27 million it paid for the complex three years earlier.

Crescent’s residential business model was hurt by its dependence on small custom builders, local consultant Graham says.The company has 38 residential communities under development in the Carolinas, Georgia, Texas, Florida and Arizona, and is currently building 1,200 apartments.

Before the residential market crashed, the company’s success was tied to speculative builder inventory. Builders would have as many as 40 homes under various stages of construction in any given Crescent community a few years ago, Graham says.

That market, driven by relocation traffic, has come to a standstill.

Walter Fields, a local development consultant, says Crescent’s problems aren’t an isolated case. “I think Crescent is a fundamentally sound company. The projects they have done are projects that have been successful,” he says. Companies such as Crescent have been “caught up in whole lot of stuff not of their own making.”

Tightened credit, nervous buyers and looming loan deadlines have damaged the industry as a whole, he says. “We work with a lot of developers who are in the exact same boat.”

Charlotte Business Journal senior staff writer John Downey, staff writer Will Boye and research director Amy Shapiro contributed to this report.

•Charlotte: The filing includes Piedmont Row in SouthPark, Belgate in north Charlotte, The Sanctuary at Lake Wylie and The Point on Lake Norman.

•Washington, D.C.: Crescent had been chosen as master developer of a 4.1 million-square-foot project for the Armed Forces Retirement Home in northwest D.C. in 2007. The deal fell through earlier this year.

•Tennessee: Crescent’s Greenway One — a $33 million, 168,000-square-foot building near completion in Cool Springs — has been boarded up for months as contractors filed millions of dollars in liens against it. A similarly sized Crescent project next to it is about 90% vacant a year after being built.

•Florida: Crescent has controlling interest in LandMar Group, which planned a $450 million project called the Shipyards on the Northbank in Jacksonville. The Jacksonville Economic Development Commission authorized city lawyers in May to start the foreclosure process on the 41-acre site. LandMar had plans to develop dozens more properties in Florida and throughout the Southeast.

•Texas: Crescent’s properties include Rough Hollow, a master-planned community near Austin. Last summer, the company froze plans for its 163-unit, 20-story Aquaterra project in Austin.

•Georgia: Crescent is a joint development partner with life insurance giant Manulife Financial Corp. on 20-story Phipps Tower in Atlanta. The building is under construction next to Phipps Plaza in the Buckhead area.